Royal Bank of Scotland Group Plc, fined US$612-million for manipulating benchmark interest rates, plans to claw back three-quarters of the money from bonuses and awards already paid out to the firm’s employees.

Britain’s biggest publicly owned lender will pay US$325-million to the U.S. Commodity Futures Trading Commission, US$150-million to the Department of Justice and 87.5-million pounds (US$137-million) to the U.K.’s Financial Services Authority, the CFTC said in a statement today. RBS said it will recoup about 300 million pounds from employees. The bank’s Japanese unit also agreed to plead guilty to wire fraud as part of the settlement.

This is an extremely serious matter, motivated by greed

“This is another day of shame for Britain’s banks,” Treasury Minister Greg Clark told lawmakers in London today. “This is an extremely serious matter, motivated by greed.”

The penalty is the biggest blow to Chief Executive Officer Stephen Hester’s attempt to overhaul the lender after it took 45.5-billion pounds from taxpayers in the largest bank bailout in history in 2008. The fine, the third to result from the global probe so far, exceeds the 290-million pounds Barclays Plc paid in June, and is second only to the US$1.5-billion Switzerland’s UBS AG paid in December.

“Libor manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom,” Hester said today. “We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture.”

‘Selfish’ Culture

RBS climbed 1.4% to 342.1 pence in London. The shares have gained 19% over the past year. The U.K. paid the equivalent of 502 pence for the shares as part of the government rescue and taxpayers own 81% of the firm.

This is, if you like, a resolution of a legacy issue of the past

“Today’s news is interesting for the details, but less material in terms of the financial position,” said Ian Gordon, an analyst at Investec Plc in London who estimates RBS will report a 1.7-billion-pound loss for the fourth quarter. “The main challenge for RBS isn’t the one-off regulatory issues. It’s anemic earnings growth. This is, if you like, a resolution of a legacy issue of the past.”

Investment banking chief John Hourican, 42, will leave the bank after handing over his responsibilities, RBS said. He will forfeit all his unvested bonus and long-term incentive plan awards that are subject to claw-back, the bank said.

‘No Involvement’

Hourican, who took over the securities unit in October 2008, was responsible for shrinking the operation and making it safer following a decade of expansion under CEO Fred Goodwin that led to a surge in bad loans and credit market losses. RBS announced more than 3,500 job cuts at the investment-banking unit in January 2012, and said it would sell or close its cash equities, merger, broking and equity capital markets operations.

“While John had no involvement in or knowledge of the misconduct, and very notable business achievements while in office, both John and the board felt it was right that he leave the organization,” the bank said.

More than a dozen RBS traders made hundreds of attempts to manipulate yen and Swiss franc Libor between mid-2006 and 2010 to benefit their trading positions, sometimes colluding with counterparts at other firms, the CFTC said. That continued even after the CFTC commenced its investigation into the wrongdoing.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s Libor submissions, trying to manufacture winning trades,” said David Meister, the CFTC’s director of enforcement. “That’s what happened at RBS.”

219 Requests

The London interbank offered rate, or Libor, is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

RBS made at least 219 documented requests for inaccurate submissions, according to Britain’s FSA. Derivatives traders sat next to Libor submitters “and encouraged the two groups to communicate without restriction despite the obvious risk that the derivatives traders would seek to influence” submissions, the regulator said.

In one exchange of e-mails released by regulators today, a broker at another firm sought to influence an RBS rate-submitter. “if u cud see ur way to a small drop there might be a steak in it for ya, haha,” the broker wrote.

‘Whore’s Drawers’

In messages in September 2009, an RBS derivatives trader asked a submitter to lower the firm’s fixings that day. The employee responded “make up your mind, haha, yes no probs.”

“Im like a whores drawers,” the trader replied.

The bank didn’t have any controls governing its Libor submissions until March 2011 and didn’t address the risk that derivatives traders could seek to influence the submissions until June 2011, the FSA said.

RBS said no regulator found evidence the firm’s senior managers instructed employees to make artificially low submissions to make the lender look financially healthier.

The bank has dismissed six individuals for Libor-related misconduct, including two managers. A further six have been “severely disciplined or are going through a disciplinary process,” the bank said. Eight more left the organisation before disciplinary action could be taken. In all, 21 of the bank’s 137,000 employees have left or been disciplined over Libor, RBS said.

Claw-Back

The bank is seeking to recoup 300-million pounds because it equals the amount that the lender is paying to overseas regulators, Hampton told reporters at a press conference today. “Thousands” of employees, mostly at the investment bank, face having their bonuses cut, while the firm is considering clawing back payments to former directors, Hampton said.

The settlement talks, which were close to completion last month, were prolonged as the Justice Department pressed RBS to plead guilty to criminal charges, two people with knowledge of the discussions said on Jan. 29. Zurich-based UBS’s Japanese unit pleaded guilty to one count of wire fraud in the U.S. in its settlement. Barclays accepted no criminal liability.

RBS also agreed to enter into a deferred prosecution agreement with the Justice Department today, the agency said. In such a deal, the government allows a target to avoid charges by meeting certain conditions — including the payment of fines or penalties — and by committing to specific reforms, either under the guidance of a monitor or the creation of an internal compliance panel. If the terms of the agreement are not met, the government can prosecute the case.

U.K. Business Secretary Vince Cable said in a speech at Bloomberg’s European headquarters in London today that privatizing RBS “now looks a distant dream” and again urged that the stock be given away to taxpayers.

——Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, will pay about US$612 million in fines for manipulating interest rates, the second-largest penalty imposed in a global regulatory probe.

The lender will pay US$325 million to the U.S. Commodity Futures Trading Commission, US$150 million to the Department of Justice and 87.5 million pounds (US$137 million) to the U.K.’s Financial Services Authority, the CFTC said in a statement Wednesday. RBS’s Japanese unit agreed to plead guilty to wire fraud as part of a deal with the Justice Department, the CFTC said.

“The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s Libor submissions, trying to manufacture winning trades,” said David Meister, the CFTC’s Director of Enforcement. “That’s what happened at RBS.”

The penalty is the biggest blow to Hester’s attempt to overhaul the lender after it took 45.5 billion pounds from taxpayers in the largest bank bailout in history in 2008. The fine, the third to result from the global probe so far, exceeds the 290 million pounds Barclays Plc paid in June, and is second only to the US$1.5 billion Switzerland’s UBS AG paid in December.

British finance minister George Osborne has already said RBS, which is 82% owned by the state, must pay the fines out of bankers’ bonuses rather than from the pockets of taxpayers, while critics say the scandal shows banks’ riskier activities should be separated from basic lending functions.

Banks across the world are struggling to rebuild their reputations after the financial crisis, and many have been engulfed in a series of investigations into their past misdemeanours, including fixing benchmark interest rates, money laundering and mis-selling products to customers.

From at least 2006, more than a dozen RBS traders made “hundreds” of attempts to rig yen and Swiss franc Libor to benefit their positions, the regulator said. At times, the RBS employees succeeded in rigging the benchmark, the CFTC said.

Britain’s largest publicly owned bank rose 0.4% to 338.8 pence as of 1:09 p.m. in London. The shares have gained 17% over the past year. The U.K. paid the equivalent of 502 pence for the shares as part of the government rescue and British taxpayers own about 81% of the firm.